ISLAMABAD: In a strategic move to address critical energy challenges and promote economic growth, the Power Division is set to propose a revised electricity supply mechanism for Special Economic Zones (SEZs) under the China-Pakistan Economic Corridor (CPEC).
According to sources, Pakistan’s Ministry of Energy (Power Division) in a bid to overcome systemic hurdles in electricity provision and fast-track the development of SEZs, has formulated a summary regarding revising the electricity supply mechanism for the SEZs. This summary will be presented to the Cabinet Committee on Energy (CCoE) for seeking its necessary approval. CCoE will soon give its nod in this regard.
As per sources, Power Division, through a summary titled ‘Revision of Electricity Supply Mechanism for Special Economic Zones (SEZs), is set to solicit the approval of CCoE for the following:
(i) CPEC SEZs will sign a Power Purchase Agency Agreement (PPAA) with DISCOs for supplying power equivalent to peak demand for five years (extendable).
(ii) SEZs will apply for supplier of last resort and distribution licenses from NEPRA under Section 23E and 20, respectively for the supply of electric power and development, operation & maintenance of distribution infrastructure within SEZ premises/service area.
(iii) The SEZs shall be obligated to procure additional power per NEPRA-approved regulations and applicable codes.
The Special Economic Zone Act 2012, amended in 2016, mandates federal and provincial governments to ensure the availability of essential utilities, including electricity, for SEZs. Despite this legislative framework, SEZs have faced persistent issues such as unreliable power supply, delays in infrastructure development, and non-compliance with generation capacity requirements under Section 23E of the NEPRA Act.
Additionally, ambiguities in the law have hindered power connections from Distribution Companies (DISCOs), further delaying industrial progress in these zones.
A significant bottleneck lies in the absence of regulatory provisions allowing DISCOs to supply electricity to SEZs at a single point for resale to industrial consumers. This gap not only causes delays but also results in higher electricity tariffs for SEZs compared to the uniform industrial tariff offered by DISCOs. This disparity has been highlighted in the development agreement for the Rashakai SEZ.
Recognizing these challenges, the Ministry of Energy initiated comprehensive deliberations with Chinese counterparts to devise a sustainable solution. Two key options/modalities were discussed:
Firstly, SEZs will remain under the service territory of the concerned distribution company (network and supply licensees). The SEZ developer will sign an O&M agreement with the DISCOs for the development, operation, and maintenance of infrastructure, supply of electricity and billing and collection thereby eliminating the need for additional licenses for the zone developer. The industrial consumers would be chargeda uniform industrial tariff and the developer will receive an O&M fee for maintaining the network which would be approved by NEPRA in the distribution margin of DISCOs.
Secondly, SEZs will sign a Power Purchase Agency Agreement (PPAA) with DISCOs for supplying power equivalent to peak demand for five years (extendable). SEZs will apply for supplier of last resort and distribution licenses from NEPRA under Section 23E and 20, respectively for the supply of electric power and development, operation & maintenance of distribution infrastructure within SEZ premises/service area. The SEZs shall be obligated to procure additional power per NEPRA-approved regulations and applicable codes.
After consultations with key stakeholders, including the National Electric Power Regulatory Authority (NEPRA) and the Board of Investment (BOI), Option B emerged as the preferred choice. NEPRA had already advertised draft amendments to its licensing regulations on September 6, 2024, paving the way for this proposal’s implementation.
The revised mechanism offers several advantages. By empowering SEZs to secure supplier licenses and manage their distribution infrastructure, it ensures uninterrupted power supply, enhances operational efficiency and addresses long-standing regulatory ambiguities. The mechanism also aligns with NEPRA’s regulatory framework and is expected to foster industrial growth, especially in CPEC SEZs.
The Ministry of Energy emphasized that this initiative would not only ensure the fulfillment of statutory obligations under the SEZ Act but also improve investor confidence by offering a more reliable energy ecosystem.
The summary was circulated among all relevant stakeholders, including the Finance Division, NTDC, and KE, all of whom supported the initiative. Based on their input, the Ministry of Energy recommended the latter option for approval.
As Pakistan continues to attract domestic and foreign investment through its SEZs, this revised electricity supply mechanism marks a significant milestone in addressing infrastructural and regulatory challenges, paving the way for sustained economic growth.
